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Economy & Business

Commentry: U.S. immigration policy hurts U.S. economy

This article first appeared in the St. Louis Beacon, Oct. 9, 2012 - Immigration policy is a hot button topic, especially in an election year. One aspect of current policy that is not getting much political attention is the fact that our current policy is driving immigrant entrepreneurs away.

It has long been recognized that new businesses are a prime source of job creation. But there has been a change in the nature of those businesses over the past decade. Between 1995 and 2007, data from the Bureau of Labor Statistics show that the number of new businesses opened increased about 10 percent. The onset of the Great Recession changed that trend. The number of new businesses opening dropped to about 500,000 in 2010 and has since only partly recovered.

While the number of new businesses increased before 2007, the average number of workers in those businesses declined. And this decline took place before the recession.  Beginning in the late-1990s, new business startups have become smaller. In 2000 the average number of employees in new businesses stood at about eight. Today it is closer to 5. The consequence is almost a 50 percent reduction in the number of new business employees over the past decade.

Some of this trend is due to the fact that many new businesses rely on modern technology.  Some tech businesses may need only one or two employees. Following the fiscal crisis, it also has become more difficult to secure financing for startups.

If it is hard enough to create jobs in this changing environment, an immigration policy that increases the difficulty of successful entrepreneurs staying in the country can’t help. The evidence supports a change in policy.

A new study by the Kauffman Foundation reports that the number of high-tech startups founded by immigrants has stalled. Since 2005, the report, “America’s New Immigrant Entrepreneurs: Then and Now” shows that the proportion of immigrant-founded companies has declined to 24.3 percent from 25.3 percent in 2005 nationwide. In Silicon Valley the drop is even more alarming: Tech startups by immigrants accounted for 52.4 percent of new companies in 2005 while today it is less than 44 percent.

These statistics are large enough to warrant a change in our immigration policy. Vivek Wadhwa, an author of the Kauffman study, has further analyzed the data in his new book, "The Immigration Exodus: Why America is Losing the Global Race to Capture Entrepreneurial Talent."

The recent trend in loss of entrepreneurs is, for the United States, unprecedented. The beneficiary of other countries’ “brain drain” we are now experiencing the consequences. And even though the number of employees per new business may not be as big as in the past, job creation is stymied by immigration policies that force potential employers to return home, or to seek opportunities in countries with less onerous immigration standards.

Wadhwa, the director of research at the Center for Entrepreneurship and Research Commercialization at Duke University’s Pratt School of Engineering, observes that “it is imperative that we create a startup visa for these entrepreneurs and expand the number of green cards for skilled foreigners to work in these startups. Many immigrants will gladly remain in the United states to start and grow companies that will lead to jobs.”

There is even a longer-horizon aspect to this problem. If our unfriendly immigration policy toward skilled immigrants persists, it could negatively affect economic growth. Research by economics professor Garett Jones of George Mason University shows that immigrants from countries characterized as having higher average levels of cognitive skills tend to be highly productive after they settle in their adopted country. Policies that make it more difficult for skilled, high-productivity individuals to enter and remain in the U.S. is detrimental to job and wealth creation.

We live in a globally competitive world. Competition takes place not only for goods and services, but also for talent. Immigration policy should address our loss of entrepreneurs and potential employers. Failure to do so will only raise another obstacle to our already tepid economic recovery.

>R.W. Hafer is a research professor of economics and finance at Southern Illinois University Edwardsville and a research fellow at the Show-Me Institute, St. Louis.

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